New Delhi: Profits of Indian banks are expected to increase in the third quarter (October-December) of the financial year 2026 on a year-on-year basis, with margins remaining stable. This outlook was shared in a report released on Monday.
The report by Systematics Institutional Equities stated that the improvement in profits is likely due to sustained loan growth, higher fee income, and lower credit costs.
Brokerage firms estimate that loan growth will continue in the near future, supported by a decline in interest rates and increased demand following reductions in GST and income tax.
Additionally, the report predicts a decline in net interest margin in the fourth quarter, followed by a recovery. This recovery is expected as the current loan book grows again, slippage in the non-performing loan segment normalises, and the cost of deposits decreases, leading to lower credit costs.
According to RBI data, advances in the banking system increased by 4.5 percent on a quarterly basis and 11.7 percent on an annual basis till December 12, 2025.
The report also mentioned that most banks have already reduced interest rates on both savings accounts and fixed deposits early on to protect their margins. The reduction in savings account interest rates had an immediate impact on fund costs, while the benefits of reduced fixed deposit rates are expected to become more apparent in the current quarter due to delayed repricing of existing fixed-rate deposits.
Another recent report highlighted that except for some seasonal fluctuations in agriculture, asset quality is expected to remain stable for most banks. The brokerage firm added that steady improvement trends are likely in the third quarter, which will help mitigate the impact of loan costs.
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